Retirement Planning 101

Retirement planning 101: This isn't your grandparents' retirement.

by Molly Musler | Jun 24, 2016

When The Social Security Act was signed by Franklin D. Roosevelt in 1935, the world was a very different place. In Roosevelt’s inaugural address, he famously said, “the only thing we have to fear is fear itself.” Where the concept of retirement is concerned, that may no longer be the case.

Here are some of the new rules of retirement:

    •    You’ll probably live longer.
    •    You may want to retire earlier.
    •    Pension plans are becoming less prevalent.
    •    Health care costs are rising.
    •    Your kids will rely upon you.

According to Employee Benefit Research Institute, “41 percent of workers aren’t confident in their ability to retire comfortably.” Are you? If you’re daunted by the idea of retirement planning, read on.


How much will I need to retire? Answering this question starts with calculating your current expenses and adding other retirement expenses—keeping in mind expenses that will go away, like payroll taxes and expenses related to commuting, for example. Make sure you consider health care costs; according to Fidelity, the expected out-of-pocket medical costs for a couple retiring this year is $220,000. And also consider other goals like vacation homes or college for your children and extended family.

One rule of thumb to check if you’re on track is the 4 percent rule. A series of studies have shown that starting with an initial withdrawal rate of 4 percent from a balanced portfolio and increasing your withdrawals annually for inflation has been a safe withdrawal rate over most 30-year periods. So, a $1 million portfolio should be able to safely generate $40,000 in the first year of retirement.

Another way to look at this is to take your current expenses and multiply them by 25. For example if your current expenses (that won’t be covered by Social Security or other retirement income) are $70,000 annually, you would want to have $1.75 million saved up for retirement. 


Compound interest is an investor’s best friend, so smart investing—early—is critical. It’s important to invest your growing nest egg with a portfolio that doesn’t put all those eggs in one basket by owning a globally diversified portfolio of stocks and bonds.  What that diversified portfolio looks like will depend on your timeframe, goals, and risk tolerance.  It is also important to consider the costs of your investments.  Just because an investment costs more to own does not necessarily mean it will have a higher return. In most cases simple and low-cost is better than complex and high-cost.


Planning for retirement isn’t only about investing. You’ve heard that you should protect yourself by keeping three to six months’ worth of expenses in a cash reserve at all times, but have you evaluated your insurance coverage to make sure you’re not paying too much?

Beyond that, protecting your identity is an often overlooked part of the puzzle. The unfortunate reality is that identity theft is a real threat. Taking care not to send social security or credit card information over email, changing your passwords monthly and never providing more personal data than is necessary will help ensure your identity and assets are protected.


Make sure to take advantage of your company retirement plans. Not only are there tax benefits but your employer may match the contributions. If you’re self-employed there are also several options for tax deferral including SEP IRAs, and solo 401k’s.

Another opportunity for keeping taxes in check is Roth IRA conversions. Whereas most retirement plans have Required Minimum Distributions (RMDs), with mandatory withdrawals when you reach the age of 70½, Roth IRAs do not require withdrawals until after the death of the owner. Because withdrawals are included in taxable income, you can keep taxes lower by converting a traditional IRA to a Roth IRA. A Roth conversion might make sense if:

    •    You expect your tax bracket to be higher in retirement
    •    You’re temporarily in a lower tax bracket
    •    Stocks are currently in a bear market and you have a long time horizon
    •    You’re doing it as part of an estate planning strategy

Contributions to charity (including donor-advised funds) provide a quick and simple means of offsetting taxes on either partial or full Roth conversions, and who wouldn’t rather help a philanthropic organization over paying the taxman? Other ways to keep your taxes low include tax-loss harvesting, which is selling one security at a loss to offset the capital gains tax liability on another, and deducting investment expenses.


Those approaching retirement want to know when to begin collecting Social Security benefits—and the answer can have costly implications. According to the AARP, “In general, your check is always reduced for life if you file for any benefit before what Social Security calls your ‘normal retirement age.’ That's 66 for people born from 1943 to 1954 and rises gradually for every birth year through 1959. For those born in 1960 or later, normal retirement age is 67. There's a fat bonus for collecting your benefits late: Social Security pays you an extra 8 percent for every year past ‘normal retirement age’ that you delay your claim, up to age 70.” Delaying Social Security can be a smart investment!


Legacy planning is an important part of planning for retirement. In retirement, you want to know not only that you are financially protected but that the generations to come are protected, as well. Now is the time to update or create the following:

    •    Will and living trust, if needed
    •    Designation of financial power of attorney
    •    Health care directive
    •    List of assets, instructions, passwords

It’s also a good time to review federal and Washington state estate taxes and have a conversation with your executor and trustee to ensure that everyone is briefed on the legacy plan.

Need help with your retirement plan? Get in touch.


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